Oil Market Rocked by Extreme Volatility

Gasoline prices keep grinding higher, though they remain fairly low when compared with recent years. The national average price of regular unleaded rose five cents from a week ago to reach $2.18 per gallon. This spring, when driving plummeted because of the coronavirus pandemic and consumers were buying little gas, the national average price fell to about $1.70. But since then, oil producers have throttled back their output, Americans are getting in their cars again, and pump prices have rebounded. We look for the national average price to be near $2.25 per gallon next weekend, when many people will be traveling for the Independence Day holiday. Considering that a year ago, the national average was $2.72, that doesn’t sound too bad. Diesel, now averaging $2.44 per gallon, is little changed from recent weeks, even as gasoline prices climb.

The oil market remains highly volatile, with big moves up or down, depending on the day’s headlines. Some days, traders bid up crude on signs that the global economy is recovering from the pandemic. Other days, they send oil futures sliding on bad news about new coronavirus infections that could lead to less travel, and thus, less oil consumption. We expect benchmark West Texas Intermediate to mostly trade in a range of $35 to $40 per barrel in coming weeks.

Natural gas prices fell to their lowest level in about 25 years last week but have recovered slightly. The benchmark gas futures contract recently traded at $1.73 per million British thermal units, which is still deep in bear market territory. With electricity demand low because of the economic downturn and gas supplies higher than usual, it’s unlikely that gas prices will be able to mount any sort of sustainable rally anytime soon.

Source: Department of Energy, Price Statistics